Brokers’ take: JPMorgan upgrades TDCX to ‘overweight’; expects continued earnings growth
Michelle Zhu
CONTRARY to market expectations, JPMorgan Securities is forecasting New York-listed TDCX to report continued revenue and earnings growth in spite of risks presented by generative artificial intelligence (GenAI).
The research house upgraded its call on the digital customer experience (CX) solutions provider to “overweight” from “neutral” as it said the company’s business continuity risks from GenAI were priced in.
“With TDCX trading at depressed valuations and pricing in business continuity concerns, we upgrade the stock to ‘overweight’,” said JPMorgan analysts on Sunday (Oct 29).
While the analysts acknowledged that CX companies like TDCX “appear most at risk” from GenAI, they said the CX industry could also benefit from more outsourcing driven by productivity gains and specialised workloads.
“This could offset the negative impact of price deflation and automation (from Gen AI),” they said.
JPMorgan’s price target on TDCX was nonetheless cut to US$7.40 from US$9.80 to account for lower FY2023 to FY2024 revenue forecasts, in view of macroeconomic headwinds and their potential impact on consumer spending.
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The new price target is based on a one-year forward enterprise value-to-earnings before interest, taxes, depreciation and amortisation ratio of 4.5 per cent, which represents a premium to TDCX’s customer care peers due to its comparatively higher growth outlook.
“With conflict in the Middle East and rising concerns about content on social media, we believe content moderation intensity is likely to rise, which should benefit TDCX,” they added.
In JPMorgan’s view, content moderation – which accounts for about 10 per cent of the group’s revenues – could resume growth from H2 of FY2023.
The research house projected TDCX’s earnings to grow by about 30 per cent from FY2023 to FY2026.
“We believe TDCX’s roster of industry leaders is likely to drive a healthy revenue compound annual growth rate of 8 per cent over FY2023 to FY2026. These revenues are coming with industry-leading profitability,” said the analysts.
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